EquaTerra Reports 3Q10 Demand for Outsourcing Growing at Slow but Steady Pace as New Markets Emerge and Scope of Deals Increases for the First Time Since 3Q09

HOUSTON & LONDON--(EON: Enhanced Online News)--Slow but steady growth in demand continues to characterize the outsourcing and third-party business and IT services industry for the fourth consecutive quarter, according to EquaTerra’s 3Q10 Advisor and Business/IT Service Provider Pulse Survey.* With no quick fix to the economy in sight, outsourcing to improve process efficiencies continues to take a backseat to efforts to reduce costs. Buyers who used outsourcing to cut costs at the outset of the recession are continuing to fine-tune efforts with small, targeted projects. New adopters are following suit, pushing for low-cost/offshore locations and launching projects with benchmarking initiatives that will enable them to closely monitor and measure service provider performance.

“Those in the vanguard are looking for ways to sustain their competitive advantage by holistically rethinking their business service models.”

“Overall, organizations are in better financial shape than they were this time last year, but they appear content with the status quo operationally,” says Stan Lepeak, managing director of global research for EquaTerra. “The prevailing attitude seems to be we can live with things the way they are for the time being.”

Key Findings from EquaTerra’s 3Q10 Pulse:

• Growth in demand for BPO/ITO is steady – EquaTerra’s customer-facing advisors (51 percent) cited a modest uptick in demand growth, one percent quarter-over-quarter and three percent year-over-year. Service providers (66 percent) reported a four percent increase in new deal pipeline growth for the quarter, a nine percent drop from this time last year, reflecting a continuing disruption in deal flow.
• Scope of deals increases – Service providers (31 percent) reported increases in the scope of their contracts, which typically directly correlates to contract value, up 10 percent from last quarter and 15 percent year-over-year. Additionally, 71 percent of service providers expected to increase the scope of existing contracts next quarter, up seven percent for the quarter and 11 percent for the year.
• Service provider capacity tightens – Overall capacity levels (availability of adequate and skilled resources for sales pursuit, engagement and transition/delivery) deteriorated slightly as service providers also look for cost savings. EquaTerra advisors (32 percent, up nine percent from last quarter) cite that service provider delivery capacity is showing the strains of slower growth, budget squeezes and increasingly demanding clients.
  

As Industry Matures, Outsourcing Expands into New Niches and New Industries

Information technology and horizontal business process outsourcing still account for the lion’s share of outsourcing activity, but inefficiencies associated with bloated IT organizations and antiquated back-office systems were largely addressed in the initial boom years of outsourcing. Growth is now coming from new niches within established industries and through expansion into industries and/or areas within industries once considered too strategic to outsource. Overall, as the industry matures, deals are getting smaller but often more complex, while innovations like cloud computing are redefining what constitutes outsourcing. A summary list of industries using outsourcing to adapt to a new playing field illustrates the changing nature of the industry:

• Banking – A new outsourcing niche has grown up to deliver and support online banking, while the relentless quest to cut costs has led to an expansion of BPO to include reconciliation, analytics and customer support.

• Finance and Accounting – F&A organizations have been implementing both captive shared service centers and FAO for years, but the scale and scope of these efforts has expanded significantly to support more strategic F&A activities such as planning, analytics and compliance.

• Health Care Payers – Until now, given the complexity of payers’ claims processing systems, few have entered into comprehensive, transformational application development and maintenance outsourcing contracts. Faced with new health care reforms slated to become law in 2014, and the accompanying fixed medical loss ratios and highly competitive marketplace, health care payers are reassessing outsourcing opportunities in operations, shared services and IT.

• Human Resources – Most organizations now outsource benefits management, and many are beginning to outsource parts of their recruitment and selection strategies. But that’s just the tip of the iceberg. Medical tourism is laying the foundation for the globalization of non-emergency medical treatment, especially surgeries. HR organizations are already exploring ways to sub-contract and/or partner with medical tourism facilitators to leverage significant cost savings for both the company and individual employees.

• Knowledge Management – Large organizations increasingly turn to outsourcing to align training to business performance and ensure training programs and practices such as Six Sigma are consistently applied.

• Legal Process – Long opposed to relinquishing control, legal firms are now tapping offshore locations, mainly India, for help with contracts, e-discovery, paralegal services and, increasingly, litigation support. The huge surge in bankruptcies and mortgage foreclosures brought about by the recession has accelerated the pace of adoption.

• Pharma – Concerns over the potential loss of intellectual property were a barrier to entry, but pharmaceutical companies are now outsourcing clinical data management, adverse effects research, medical writing and applications development and maintenance for drug discovery.

“Organizations are no longer looking at outsourcing function-by-function and process-by-process,” said Lepeak. “Those in the vanguard are looking for ways to sustain their competitive advantage by holistically rethinking their business service models.”

About EquaTerra’s 3Q10 Pulse*

EquaTerra combines relevant recent research with trending data gathered through a quarterly survey of leading outsourcing service providers and EquaTerra’s own client-facing advisors to create the quarterly Pulse survey. For insight into the global outsourcing market and a comprehensive discussion of survey results, please register for EquaTerra’s 3Q Pulse Webcast Tuesday, October 26, at 11 a.m. (EDT). Presenters: Brian Walker, managing director of IT Consulting in North America for EquaTerra, Nico Boot, executive director for EquaTerra in Europe and Asia Pacific, and Stan Lepeak, managing director of global research for EquaTerra. To obtain a copy of the 3Q10 Pulse survey, please contact Stan Lepeak.

About EquaTerra

EquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported more than 2,000 transformation and outsourcing projects across more than 60 countries. Supporting clients throughout the Americas, Europe, Middle East, Africa and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement, Real Estate & Facilities Management and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions. For more information, please contact Lee Ann Moore at +1 713.669.9292; www.equaterra.com.